Do you know what the blue ocean strategy is? How does it work? How can it help you fend off competitors and become a strong, dominant company in your industry? You will find out all this and more in the following article. You can also read the real story of how the famous Apple managed to sail through the dangerous waters of its competitors and succeed.
Blue ocean strategy, definition
Imagine a blue ocean and a red ocean. Where would you rather swim? Probably in the blue one, right? Companies should approach their strategy in a similar way. If they boldly cross into the red ocean, many of them will not survive for long. Lots of stronger businesses lie in wait there and will ruthlessly end their lives, just as sharks and rays in the ocean do not leave small, defenceless fish alone for long. That sounds rather sad, even frightening, doesn’t it? Fortunately, there is also the blue ocean, where small, defenceless fish can not only live a long life but may even grow into big, strong sharks.
The concept of the blue ocean strategy, or Blue Ocean Strategy (BOS), first saw the light of day in 2005. It was created by professors W. Chan Kim and Renné Mauborgne. How can a company use it? The red ocean is a place that is already occupied by sharks, in other words large, strong and aggressive companies. Because this ocean is limited in size, the dangerous creatures take plenty of space for themselves, so there is not much left for you. The rules of the game are clearly set. If a newcomer arrives without enough strength for this tough fight, it is finished. Succeeding as a newcomer here is very hard. That is why, as a start-up company, you should look for blue oceans instead.
The blue ocean is a place where you can grow and strengthen your position in a competitive market. It is an ocean that the sharks have not yet discovered at all, so it is safe for you. You will not come across a shark anywhere near, in other words there is simply no competition here. It offers plenty of space and unexplored opportunities. Its typical feature is that demand is only just being created here. This is because it involves a completely new service or product, so you have great potential for growth.
An interesting idea is that a blue ocean cannot be found, you have to create it yourself. This means coming up with something new that nobody has thought of yet. And how exactly do you do that? Focus mainly on innovation and new ways of thinking. This will allow you to create your own protected blue space even in the middle of dangerous red waters.
Blue ocean vs red ocean strategy, the key differences
The meaning of the blue ocean strategy is easiest to understand when you set it against its opposite. A red ocean strategy accepts the market as it is and tries to win a bigger share of it. A blue ocean strategy tries to change the boundaries of the market so that direct rivals matter less. The main differences look like this.
- Market space. In a red ocean you compete in an existing market. In a blue ocean you create a market space where there is no direct competition yet.
- Goal. A red ocean strategy aims to beat competitors. A blue ocean strategy aims to make them irrelevant.
- Demand. In a red ocean you fight over customers who already buy. In a blue ocean you attract new customers, including people who did not buy anything in the category before.
- Value and cost. Red ocean companies usually choose between being different and being cheap. Blue ocean companies try to achieve both at once.
The authors call this last idea value innovation. You raise the value customers get while cutting the costs that do not matter to them. Without it, an innovation is just a new feature that competitors can copy.
Blue ocean strategy, an example
Take the famous company Apple, for example. When it was developing the iPhone, it was at first in a dangerous red ocean. The mobile phone market was already fairly developed at the time and offered several alternatives. Nokia, for example, could boast phones with a powerful camera, a high-quality music player or internet access. The less well-known BlackBerry phones had strong support for email and text, very good security and were popular with business people.
But then Apple arrived with its touch screens, great design and intuitive user interface, and everything changed. It easily dealt with the sharks of the time and still holds a dominant position in this industry today.
But we do not have to stick to complex technological innovations. Do you like the circus? Then you may know the company Cirque du Soleil. When it was founded in 1984, circuses and their shows were already a popular form of entertainment. They attracted audiences with crazy clowns, skilful acrobats and exotic animals. At Cirque du Soleil, however, they came up with something new. They combined elements of the circus with theatre and created a unique experience for their audience.
How do you use the blue ocean strategy in practice? The so-called value curve, which is related to all of this, could also help you. It shows the strengths and weaknesses of your competitors compared with your business.
Before entering the market, do not forget to carry out a competitor analysis so that you are not caught by surprise later. You have many options. You can use, for example, Porter’s five forces theory, Kotler’s competitive market positions, benchmarking, the BCG matrix, the GE matrix, the life cycle matrix, the well-known SWOT analysis or a SPACE analysis. Then your competitors will not catch you off guard so easily!
How the blue ocean strategy canvas works
The strategy canvas is the main tool for drawing the value curve mentioned above. It is a simple chart. Along the horizontal axis you list the factors your industry competes on, such as price, range, speed or service. On the vertical axis you mark how much each player offers of each factor, from low to high. Connecting the points gives you a value curve for each company.
When most curves in an industry look alike, you are in a red ocean. Your aim is to draw a curve with a different shape, one that stands out and is easy to describe in a sentence.
The four actions framework
To reshape your curve, ask four questions about every factor on the canvas.
- Eliminate. Which factors does the industry take for granted that you could drop entirely?
- Reduce. Which factors could fall well below the industry standard?
- Raise. Which factors should rise well above the standard?
- Create. Which factors has the industry never offered?
Cirque du Soleil is a classic case. It dropped animal acts, which were expensive to keep, and added theatrical storylines and music. Eliminating and reducing keeps your costs down, while raising and creating adds new value.
How to survive in the market as a small fish?
What should you do if, despite all your caution, you find yourself in a red ocean full of sharks, in other words in a market with competitors that are hard to beat? Apart from innovative thinking and trying to create your own safe space there, you can choose one more strategy. Simply leave. Find another industry where the competition will not be as strong.
Some companies do this over and over again. They find a blue ocean, stay there for a while, and when it fills up with sharks, they leave to look for peace and comfort elsewhere. So you do not need to fear the dangers of the red ocean too much. It may be quite possible to escape from it and find your own pleasant blue space. Good luck with your search!
The Blue Ocean Strategy book and common mistakes
The full title of the book is Blue Ocean Strategy, How to Create Uncontested Market Space and Make the Competition Irrelevant. Its authors are professors at the INSEAD business school. Besides the tools above, the book discusses how to reach non-customers and how to win support for a new strategy inside a company. An expanded edition followed later, and the authors also wrote a follow-up book, Blue Ocean Shift, focused on putting the ideas into practice.
Mistakes to avoid
- Confusing novelty with value. A new product nobody needs is not a blue ocean. Customers must see a clear benefit.
- Ignoring costs. If your idea only works at a price customers will not pay, the strategy fails.
- Assuming the ocean stays blue. Successful ideas attract imitators, so plan how you will keep your lead.
- Listening only to current customers. They often ask for more of what the industry already offers, which keeps you in the red ocean.
Frequently asked questions about the blue ocean strategy
What is blue ocean strategy?
It is an approach to business strategy in which you create a new market space instead of fighting rivals in a crowded one. The idea comes from W. Chan Kim and Renée Mauborgne. The aim is to offer more value at a lower cost so that competition becomes less relevant.
What are some blue ocean strategy examples?
Cirque du Soleil, which blended circus with theatre, is the best known example. The iPhone is often cited because it changed what people expected from a phone. Both created new demand rather than only taking customers from existing players.
What is the blue ocean strategy canvas?
It is a chart that compares how much different companies offer on each factor an industry competes on. The resulting lines are called value curves. A distinctive curve suggests you have found a different strategic position.
What is the difference between blue ocean vs red ocean strategy?
A red ocean strategy competes for existing demand in a known market and usually forces a choice between low cost and differentiation. A blue ocean strategy creates new demand and pursues both at the same time. The first tries to beat competitors, the second tries to make them irrelevant.